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The Strategic Petroleum Reserve (SPR) is the world's largest supply of emergency crude oil. The federally-owned oil stocks are stored in huge underground salt caverns along the coastline of the Gulf of Mexico.
Decisions to withdraw crude oil from the SPR are made by the President under the authorities of the Energy Policy and Conservation Act. In the event of an energy emergency, SPR oil would be distributed by competitive sale. The SPR has been used under these circumstances only three times, most recently in June 2011 when the President directed a sale of 30 million barrels of crude oil to offset disruptions in supply due to Middle East unrest. The United States acted in coordination with its partners in the International Energy Agency (IEA). IEA countries released all together a total of 60 million barrels of petroleum. The SPR's formidable size (capacity of 727 million barrels) makes it a significant deterrent to oil import cutoffs and a key tool of foreign policy.
Authority for limited releases in the form of time exchanges also exists and has been used on several occasions.
Origins
The need for a national oil storage reserve has been recognized for at least five decades.
Secretary of the Interior Harold Ickes advocated the stockpiling of emergency crude oil in 1944. President Truman's Minerals Policy Commission proposed a strategic oil supply in 1952. President Eisenhower suggested an oil reserve after the 1956 Suez Crisis. The Cabinet Task Force on Oil Import Control recommended a similar reserve in 1970.
But few events so dramatically underscored the need for a strategic oil reserve as the 1973-74 oil embargo. The cutoff of oil flowing into the United States from many Arab nations sent economic shockwaves throughout the Nation. In the aftermath of the oil crises, the United States established the SPR.
President Ford set the SPR into motion when he signed the Energy Policy and Conservation Act (EPCA) on December 22, 1975. The legislation declared it to be U.S. policy to establish a reserve of up to one billion barrels of petroleum.
The Gulf of Mexico was a logical choice for oil storage sites. More than 500 salt domes, known to be an inexpensive and secure means of petroleum storage, are concentrated along the coast. Also, the Gulf Coast is the location of many U.S. refineries and distribution points for tankers, barges and pipelines. In April 1977, the government acquired several existing salt caverns to serve as the first storage sites. Construction of the first surface facilities began in June 1977.
On July 21, 1977, the first oil - approximately 412,000 barrels of Saudi Arabian light crude - was delivered to the SPR. Fill of the Nation's emergency oil reserve had begun.
Purchases totaling 591.7 million barrels were completed by the end of 1994. However, beginning in FY 1995 until January 2009, direct purchase of crude oil was suspended in order to devote budget resources to refurbishing the SPR equipment and extending the life of the complex through at least the first quarter of the 21st century.
Fill was resumed in 1999 using a joint initiative between the Departments of Energy and the Interior to supply royalty oil from Federal offshore tracts to the Strategic Petroleum Reserve. This arrangement is known as the Royalty-in-Kind (RIK) program and continued in phases from 1999 through 2009, when the Department of the Interior discontinued its RIK program.
The first direct purchase of crude oil since 1994 was conducted in January 2009 using revenues available from the 2005 Hurricane Katrina emergency sale. DOE purchased 10.7 million barrels at a cost of $553 million.
Current Status
2011. At the beginning of 2011, the SPR was full to its capacity of 727 million barrels of crude oil. During July and August 2011, the SPR sold 30 million barrels in a coordinated drawdown with the IEA and at the direction of the President. The purpose of the release was in response to supply disruptions resulting from political unrest in Libya and other countries. The globl release was for 60 million barrels; under established IEA response mechanisms, the United States' obligation was for 30 million barrels.
2009. Prior to the June 2011 announcement of sale, the SPR had been filled to its 727 million barrel capacity since December 2009 when, on Christmas Day, a tanker ship arrived at the Teppco terminal in Freeport, Texas, with a special delivery for the SPR - the final 493,000 barrels of crude oil that would complete the Reserve's initiative to fill the SPR. During the 32 years since receipt of the first barrel of oil until completion of the fill program, the SPR experienced periods of aggressive development and oil purchases, two major drawdowns, the Congressionally-mandated sale of oil for budgetary reasons, suspension of purchases, crude oil time exchanges, decommissioning of a storage site for geologic reasons, and acquisition of crude oil through tranfer from the Department of the Interior. Throughout this time, Drawdown Readiness had been the SPR's priority and mission.
The United States' SPR is the largest emergency oil stockpile in the world. Together, the facilities and crude oil represent about $22 billion investment in energy security ($5 billion for facilities and $17 billion for crude oil).
Emergency Drawdowns
The Desert Storm Drawdown
Stockpiling crude oil in the SPR reduces the nation's vulnerability to economic, national security, and foreign policy consequences of petroleum supply interruptions. The SPR proved its value in 1991 when a partial drawdown, coupled with a coordinated international supply response, help restore stability to world oil markets during the Persian Gulf War.
On January 16, 1991, coinciding with the international effort to counter the Iraqi invasion of Kuwait, President George H.W. Bush ordered the first-ever emergency drawdown of the SPR. The Department of Energy immediately implemented a drawdown plan to sell 33.75 million barrels of crude oil, the United States' portion agreed to by the International Energy Agency.
The drawdown proceeded on schedule and without major complications. Between the initial authorization and the final sale, however, world oil supplies and prices stabilized, and the United States reduced the sales amount to 17.3 million barrels which were sold to 13 companies.
Hurricane Katrina Drawdown
The SPR's second emergency drawdown occurred after Hurricane Katrina caused massive damage to the oil production facilities, terminals, pipelines, and refineries along the Gulf regions of Mississippi and Louisiana in late August 2005. All Gulf of Mexico production was shut in initially, which equated to about 25% of domestic production. Gasoline prices spiked nationwide in reaction to the disruptions, and the supply levels of gasoline and other refined products were impacted.
On September 2, 2005, in a coordinated action with the International Energy Agency, President George W. Bush issued a Finding of a Severe Energy Supply Interruption and directed the Secretary of Energy to draw down and sell crude oil from the SPR. Secretary Samuel W. Bodman immediately authorized a Notice of Sale for 30 million barrels of crude oil to the U.S. markets. The on-line sale was held from September 6-9, 2005. DOE evaluated each bid and determined that five companies had submitted acceptable offers for 11 million barrels.
In announcing the sale results, Secretary Bodman stated, "This sale ensures that refineries have the petroleum they need to keep gasoline and diesel fuel flowing to American consumers while production facilities in the gulf region regain their capacity. As we move forward, we will continue to minotor the overall supply of petroleum available and the needs of the nation as we determine next steps."
2011 IEA Coordinated Release
On June 23, 2011, Secretary Chu announced that the U.S. and its partners in the International Energy Agency (IEA) would release a total of 60 million barrels of oil onto the world market. The Secretary stated, "We are taking this action in response to the ongoing loss of crude oil due to supply disruptions in Libya and other countries and their impact on the global economic recovery." Under the IEA's response measures guidelines, the United States' obligation was for 30 million barrels.
The SPR issued a Notice of Sale on June 24, 2011, to solicit competitive offers for the purchase of 30 million barrels of sweet crude oil to be delivered by the end of August 2011. DOE received over 90 offers that resulted in 28 contracts with 15 companies for deliveries of 30,640,000 barrels.
Program Priorities
In managing the Strategic Petroleum Reserve Program, the Office of Fossil Energy's overriding objective is to maintain the readiness of the oil stockpile for emergency use at the President's direction.
From 1993-2000, the Department of Energy's top priority was to ensure the continued readiness of the Reserve through at least the year 2025 by conducting a major life-extension program. This included replacing or refurbishing pumps, piping and other key components at the SPR's Gulf Coast sites. The program was completed in March 2000 on schedule and below original cost estimates.
On November 13, 2001, President George W. Bush ordered the SPR to be filled to approximately 700 million barrels by continuing to use the royalty-in-kind program carried out jointly between the Department of Energy and the Department of the Interior. The royalty-in-kind program applied to oil owed to the U.S. government by producers who operate leases on the federally-owned Outer Continental Shelf. The producers are required to provide from 12.5 percent to 16.7 percent of the oil they produce to the U.S. government. Under the royalty-in-kind program, the government could either acquire the oil itself or receive the equivalent dollar value. (Note: in September 2009, the Department of the Interior announced the cancellation of the royalty-in-kind program but honored its commitments in existing contracts. The SPR's final cargo of December 25-27, 2009, was royalty-in-kind crude oil.)
In 2005, Congress directed the SPR to take actions to fill to its authorized size of one billion barrels. Because the Reserve currently has a physical capacity of 727 million barrels, the SPR prepared a plan to expand to one billion barrels and conducted a site selection process to construct additional storage facilities. An environmental impact statement was also prepared. However, efforts to expand the SPR to one billion barrels were terminated in 2011.
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